The trading world is flat…

In talking with new traders who are having problems making money, one thing I see over and over again is that they have a belief about the market that they did not form themselves. What I mean by this is that they came across information somewhere (in a book, a blog, a message board, from a guru, a seminar, a course, etc) and they incorporated that information into their overall view of the market and allow it to impact their trading decisions. Why this might seem like a good thing, after-all, the entire point of most of the above sources is to provide others information, it is an awful thing.

The awful aspect is not seeking out additional information, it is accepting that information as true without independent validation. Just because you read about something in a book, even a well regarded one does not mean that it true. Maybe it worked when the author wrote the book, maybe it never worked at all. The point is you do not know if the ideas are valid until you challenge and prove them yourself. Otherwise, how do you know that what you’ve just read and are trying to emulate isn’t the trading equivalent of all the people who claimed the world was flat for thousands of years? The point is you don’t and unlike Christopher Columbus, you do not have to risk your life to find out the answer, just spend some time doing the appropriate research.

When you see an interesting setup somewhere, instead of trying to trade it immediately, spent a few days (if you are able to backtest it) or a few months (if you’re just following it in realtime) to make sure the setup works how you think it does before committing money to it.  If this seems like too much work or too boring, you might as well save yourself some time and just wire the money in your account to traders who are willing to work hard and be disciplined because that is where it’s going to end up anyway.

- John